Bandimere v. United States Securities & Exchange Commission
844 F.3d 1168
| 10th Cir. | 2016Background
- The SEC brought an administrative enforcement action against David Bandimere; an SEC Administrative Law Judge (ALJ) issued an initial decision finding liability and imposing sanctions; the SEC affirmed in part.
- Bandimere raised an Appointments Clause challenge below, arguing the ALJ was an "inferior officer" who was not constitutionally appointed; the SEC conceded the ALJ was not appointed by the President, a court, or a department head but denied officer status.
- Bandimere petitioned for review in the Tenth Circuit under 15 U.S.C. §§ 77i(a) and 78y(a)(1), preserving the Appointments Clause claim; the court reviewed the constitutional question de novo.
- The Administrative Procedure Act (APA) and SEC statutes/regulations create ALJ offices, set appointment and removal procedures, prescribe duties (hearings, subpoenas, evidence rulings, initial decisions), and provide that many ALJ initial decisions become final without plenary Commission review.
- The Tenth Circuit applied Freytag v. Commissioner to evaluate whether SEC ALJs exercise "significant authority" constituting inferior officer status and concluded the SEC ALJs at issue are inferior officers whose appointments violated the Appointments Clause.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether SEC ALJs are "inferior officers" under the Appointments Clause | Bandimere: ALJs exercise significant authority (trials, credibility findings, subpoenas, initial decisions that often become final) and thus are inferior officers requiring constitutional appointment | SEC: ALJs lack final decisionmaking power; Commission reviews de novo; Congress intended ALJs as civil‑service employees | Held: SEC ALJs are inferior officers under Freytag because their office is statutory, appointment and salary are statutorily specified, and they exercise significant discretion and important functions |
| Whether final decisionmaking authority is dispositive for inferior‑officer status | Bandimere: Final authority is relevant but not required; duties/discretion suffice | SEC: Freytag hinges on final decisionmaking; without it ALJs are employees | Held: Final decisionmaking is not dispositive; Freytag emphasizes duties/discretion, so lack of finality does not preclude officer status |
| Whether deference or administrative review practice negates officer status | Bandimere: Commission often defers to ALJ credibility findings and many initial decisions become final without review, showing ALJ significance | SEC: Commission retains plenary authority and conducts de novo review; ALJs are recommendatory | Held: Practical deference and the statutory/regulatory framework show ALJs exercise outcome‑determinative authority sufficient for officer status |
| Remedy for appointment defect in this case | Bandimere: Appointments Clause violation is structural and requires vacatur of the SEC order | SEC: (implicit) no remedy or harmless error because review exists | Held: The ALJ who presided was unconstitutionally appointed; the court granted Bandimere's petition and set aside the SEC opinion (structural error) |
Key Cases Cited
- Freytag v. Commissioner, 501 U.S. 868 (1991) (STJs held to be inferior officers based on statutory office, appointment/salary specified by statute, and significant discretionary duties)
- Buckley v. Valeo, 424 U.S. 1 (1976) (an officer is an appointee exercising significant authority under U.S. law)
- Edmond v. United States, 520 U.S. 651 (1997) (inferior officer status turns on subordinate relationship and degree of authority; finality relevant to principal vs. inferior officer distinction)
- Free Enterprise Fund v. PCAOB, 561 U.S. 477 (2010) (structural Appointments Clause concerns; limits on Congress’s ability to alter appointment accountability; remedies doctrine)
- Ballard v. Commissioner, 544 U.S. 40 (2005) (discussed Tax Court collaborative review of STJ reports and the role of STJs)
- Landry v. FDIC, 204 F.3d 1125 (D.C. Cir. 2000) (contrasting view: FDIC ALJs were employees because they lacked final decisionmaking power)
- Raymond J. Lucia Cos., Inc. v. SEC, 832 F.3d 277 (D.C. Cir. 2016) (D.C. Circuit held SEC ALJs were employees, focusing on final‑decision issue)